Canadian housing starts fall sharply in May, starts likely to fall below 200k in coming quarters

Canada’s housing starts dropped sharply in the month of May. Housing starts fell 21k to 196k, down 21k from an upwardly revised 217k. Expectations were for housing starts to have risen to 220k. This is the third consecutive fall, and the lowest level since May 2017. The single family segment rose 1.4k, with the multifamily segment in large CMAs accounting for the total fall, down 23k in May.

Province wise, the losses were because of sharp falls in Quebec and Ontario, which recorded their worst months since May 2017. Prince Edward Island saw their largest decline in relative terms, down 63 percent, while new home construction in Newfoundland & Labrador dropped 26 percent to just over 500. The remaining six provinces saw gains, with the most pronounced relative gains in Saskatchewan where they more than doubled on the month and a 64 percent rise in New Brunswick.

Meanwhile, housing starts fell 13 percent in Toronto to 23.6k, as multifamily construction dropped to 14.9k, lowest in over two years. On the contrary Vancouver’s new home construction rose 14 percent in May to 26.5k – recording a pace faster than Toronto’s for the first time in 2018, noted TD Economics in a research report.

“Q2 growth will be a touch weaker than we expected, on account of weaker residential construction, expected to pull back by about 5 percent annualized during the quarter. Despite this, we believe growth should register a pace just under 3 percent after a weak start to the year”, stated TD Economics.

Given the inherent volatility, some recovery is expected to materialize in the months ahead. But, this would be taking place in the midst of an overarching trend of decelerating homebuilding at the national level, with starts likely to fall lower than 200k ore persistently in the quarters ahead as the impacts of rising interest rates, out-of-reach housing values in the GTA and GVA, and regulation continue to be a drag on housing demand.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was bearish at -71.7454, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -24.8104. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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